Put simply, a viscous combination of tax loss harvesting and profit-taking in winning names ahead of a potentially higher capital gains tax rate could put overwhelming pressure on U.S. stocks just one more time this year.

This year saw a 34% bear market induced by the coronavirus recession, a second bear market for oil and banks in June and a tech-driven 9% down-move on the S&P 500 in September.

Hang onto the roof, investors.

Tax loss harvesting could be pronounced at year end and the tax headwinds do not stop there. For the winners in this market — and there have been some big ones — investors may aggressively take some chips off the table if former Vice President Joe Biden is elected President. He would attempt to raise the capital gains tax for those earning more than $1 million a year from 20% to 37%.

There are some caveats to all of this.

Tax-loss harvesting

Although the S&P 500 has gained more than 5% year-to-date, it has been a bifurcated market, with many stocks down for the year. Tech stocks account for about 30% of the market cap of the index and have risen fiercely, with the Nasdaq 100 up more than 30%. That’s on the back of several tailwinds, the stay-at-home environment among the strongest. But a large portion of stocks on the index are down for the year. Investors may be compelled to sell.

Strategists at Morgan Stanley see 73 U.S. stocks poised for technical pressure because of tax loss harvesting. Among them are Disney  (DIS) – Get Report, down 15% year to date, General Motors  (GM) – Get Report, down 11%, Cigna  (CI) – Get Report, down 13% and Hasbro  (HAS) – Get Report,

The entire energy sector is going through a fierce sell-off due to the pandemic, in contrast to the rest of the market, which is hovering around its all-time highs. In such sell-offs, the solid companies are usually punished along with the weak ones. This is the case for Total (TOT), which has plunged 38% this year. Total is much more resilient than the other oil majors in the ongoing downturn and thus it will highly reward investors when the pandemic subsides.

Royal Dutch Shell (NYSE:RDS.A) (RDS.B) and BP (BP) have plunged much more than Total, to their 25-year lows, while Exxon Mobil (XOM) has plunged to its 17-year lows. Consequently, these oil majors may offer greater returns if the energy market recovers strongly from the pandemic. However, there are good reasons behind their significant underperformance compared to Total. The latter is much more resilient at the suppressed oil prices prevailing right now and hence it can endure the downturn much more readily than its peers. It is not accidental that Total is the only profitable oil major this year. As a result, if the downturn lasts longer than expected, Total will perform much better than its peers.

Business overview

The coronavirus crisis has caused an unprecedented downturn in the energy sector. The global demand for oil products is expected to slump by 8.1 million barrels per day on average this year (~8%) before it rebounds by 7.0 million barrels per day next year. This contraction, which is the steepest in at least three decades, has resulted in suppressed oil prices and low refinery utilization rates. Consequently, Exxon Mobil, Chevron (CVX), BP and Royal Dutch Shell are all expected to post material losses this year.

The only bright exception is Total, which is expected to achieve earnings per share of $1.20

By Fergal Smith

TORONTO (Reuters) – The Canadian dollar edged higher against its broadly weaker U.S. counterpart on Monday as oil clawed back some of this month’s decline and stock markets rose globally, with the loonie finding some support after posting three straight weekly declines.

Wall Street surged in a broad rally as investors sought bargains among sectors hardest hit by the coronavirus recession, while the U.S. dollar <.DXY> pulled back from a two-month high against a basket of major currencies.

Investors are putting aside for now evidence of rising coronavirus cases, “thinking there is still the vaccine news to mitigate concerns about a second wave,” said Shaun Osborne, chief currency strategist at Scotiabank.

“But it has got to be a potential threat for risk assets going forward and that keeps the CAD a bit more defensive,” Osborne added.

Canada runs a current account deficit and is a major exporter of commodities, including oil, so the loonie tends to be sensitive to the global flow of trade and capital.

U.S. crude oil futures <CLc1> rose 0.9% to settle at $40.60 a barrel, while the Canadian dollar <CAD=> was trading 0.1% higher at 1.3373 to the greenback, or 74.78 U.S. cents. That was a much smaller gain than for some other G10 currencies.

The loonie, which on Friday hit a seven-week low at 1.3418, traded in a range of 1.3353 to 1.3403.

Quebec, the Canadian province hit hardest by the novel coronavirus, reported another sharp increase in daily infections, and media reports said Premier Francois Legault would announce new restrictions for Montreal and the capital, Quebec City.

Canadian government bond yields were mixed across a steeper curve, with the 10-year <CA10YT=RR> up less than a basis point at 0.552%.

Canada’s GDP data for July is due on Wednesday, which could help